The $1.6 billion that indicted
financier R. Allen Stanford is accused of skimming from the
funds of his investors was actually loaned by his Antiguan bank
to start-up entities and other businesses he controlled, a fraud
examiner testified.

Forensic accountant Alan Westheimer testified before a U.S.
judge in Houston today that Stanford Financial Group Cos.
comptroller Mark Kuhrt and chief accountant Gilbert Lopez told
him they believed the borrowing should have been publicly
disclosed.

“The funds were being passed through as inter-company
loans to the entities that were the recipients of the
shareholder loans,” Westheimer said. “Within a short period,
usually six months, Mr. Stanford would assume those loans and
the recipient companies transferred those balances to their
underlying capital.”

Westheimer’s testimony came on the second day of a civil
trial in a case filed by Stanford and three of his criminal case
co-defendants against Lloyd’s of London underwriters who have
said reported crimes at the company voids the $100 million in
officers and directors insurance they sold to Stanford’s
businesses. Westheimer and a second forensic accountant who
testified, Mark Berenblut, were witnesses for Lloyd’s.

Stanford is accused by the U.S. of leading a $7 billion
investment fraud scheme centered on the sale of certificates of
deposit through the Stanford International Bank Ltd. in Antigua.
He denies the allegations, which include claims he siphoned the
money to fund a lavish lifestyle.

Loans Growing

The borrowing companies owed Stanford, and “Stanford owed
the bank,” Westheimer told U.S. District Judge Nancy Atlas
today. “The funds went to the entities.” Lopez and Kuhrt knew
the shareholders’ loans were growing and needed to be disclosed
to investors, he said.

When they advised Stanford Chief Financial Officer James M.
Davis to disclose the loans in footnotes to financial
statements, Westheimer said, Kurht and Lopez told him Davis
refused to do so.

Davis last year pleaded guilty to helping Stanford run the
alleged Ponzi scheme. Prosecutors and his attorney have said he
is cooperating in the investigation. He has not yet been
sentenced.

Lopez and Kuhrt are accused by prosecutors of falsifying
Stanford’s financial statements to match “pre-ordained” rates
of return Stanford had been promising investors.

New Entries

Forensic accountant Berenblut, who followed Westheimer on
the stand, testified that in examining Stanford’s records for
July 2007, he found entries showing an additional $1.6 million
in expenses after the month ended, which should have caused a
corresponding drop in reported net income and return on
investment.

“The revenue number is adjusted upward to maintain what I
believe is a pre-established return on investment,” Berenblut
testified. “That’s very unusual.”

The case is Laura Pendergest-Holt v. Certain Underwriters
at Lloyd’s of London, 4:09-cv-03712, U.S. District Court,
Southern District of Texas (Houston).

The criminal case is U.S. v. Stanford, 09-cr-00342, U.S.
District Court, Southern District of Texas (Houston). The SEC
case is Securities and Exchange Commission v. Stanford
International Bank, 09-cv-00298, U.S. District Court, Northern
District of Texas (Dallas).